Polaroid is latest Petters firm to file Chapter 11

Polaroid Corp., the venerable consumer company that revolutionized recreational photography more than 50 years ago with the instant camera, on Thursday became the latest entity owned by indicted businessman Tom Petters to seek protection from creditors by filing for Chapter 11 bankruptcy.

In a prepared statement, the company said the filing will not affect day-to-day operations nor the introduction of unspecified new products in 2009.

"Our operations are strong," Polaroid Chief Executive Mary Jeffries said in a prepared statement. "During this process, Polaroid will ship products to our retail partners, work with our suppliers and contact manufacturers to fulfill retailer demand, honor customer warranties, and employees are expected to receive their regular paychecks without interruption."

Doug Kelley, the court-appoint receiver who oversees Polaroid and a number of other Petters companies, said that a tight credit market and the taint of Petters' pending criminal charges in an alleged investment fraud scheme have hamstrung Polaroid's efforts to obtain financing to help it to move from the old, instant film technology into the digital arena.

"They were in the process of getting new capital when the [criminal] search warrants were executed. It became just about impossible for Polaroid to function after that," Kelley said. "Bankruptcy allows them to get stronger."

Petters and four others were charged in October with involvement in an alleged investment fraud scheme run primarily through Petters Co. Inc. As a result of a federal raid and the arrest of Petters on Oct. 3, Petters Co. Inc. and the larger Petters Group Worldwide were placed in the hands of a receiver and put into bankruptcy. But Polaroid was allowed to remain a clear-standing company because of its potential value to Petters' creditors.

Petters, 51, of Wayzata, remains jailed without bond. Four codefendants have pleaded guilty in the scheme and Petters' tax accountant, Jim Wehmhoff, is scheduled to plead guilty today to tax-related charges.

Kelley reported this week in a meeting with Petters' creditors that Polaroid's losses in 2008 would be "substantial," and Kelley's attorney said that Polaroid could not continue to operate as it had been.

Nonetheless, in a prepared statement issued after the bankruptcy filing, Polaroid said that it has "ample cash reserves" to finance its Chapter 11 reorganization. The filing also includes nine affiliated companies.

The fate of Polaroid is important to creditors and lenders who lost as much as $3.5 billion in what authorities have characterized as a Ponzi scheme directed by Petters and a small group of associates. Polaroid is one of the few remaining Petters companies that had solid assets that might mitigate the creditors' losses. Sun Country Airlines, which filed for bankruptcy in late September, is the other Petters entity that has value.

Petters bought Massachusetts-based Polaroid for $426 million in 2005. He invested $150 million of his own money and raised $250 million from commercial lenders who have since been repaid.

Petters' business strategy was to use the Polaroid brand to sell more than cameras by placing the well-known name on LCD TVs, DVD players and memory cards. The company hopes a new portable instant digital printer called the "PoGo" will be a Christmas gift hit this year. But the jury remains out.

At its peak, in 1991, Polaroid sales approached $3 billion. But revenue sagged, competition got fiercer and the company filed for bankruptcy in 2001. Today, it employs about 300 people and recorded sales of approximately $1 billion in the past 12 months.

The largest unsecured creditor is Petters Capital, one of the many Petters companies in the court-ordered receivership. It lists a claim of $184 million. Petters Co. Inc. has the second-largest claim at $29.5 million. Other creditors include suppliers and service providers. The filing does not list total liabilities and assets.

Assuming it emerges from bankruptcy intact, there's a good chance that Polaroid will be put up for sale. Kelley told creditors that he is aware of some interest from outside sources in the company. He has retained investment banker Houlihan Lokey to explore options for the company, including its sale. (Houlihan Lokey was listed among the creditors, with a claim of $165,577.)

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